Aimco's Boston Portfolio Gets a Boost

Apartment Investment & Management Co. (AIV), commonly known as Aimco, disclosed the improvement of its Boston area portfolio. The move comes as the company shifts focus from its predominantly suburban portfolio to properties with a comparatively higher price point.

In particular, Aimco acquired a 44-apartment home community, Charlesbank Residences in Watertown, MA, the deal terms of which were not disclosed. Being close to Watertown Square, an average revenue per apartment home of $2,200 per month and rents exceeding the Boston market average by 19%, this “B+” quality stabilized asset, built recently (2012) is a good buy for Aimco.

Initially funded with its credit facility, Aimco plans to repay the amount later this month with proceeds reaped through a Florida property disposition. With Aimco projecting free cash flow Internal Rate of Return (FCF IRR) generated by Charlesbank to supersede that of the Florida property by around 150 basis points, the deal can be regarded as an opportune investment.

In addition to this, Aimco penned a deal with Trinity Financial to develop a 12-story building at One Canal Street in the Bulfinch Triangle neighborhood of Boston’s West End. As per the deal, the building will be constructed by Trinity and its development team. Following the completion Aimco will own and operate it.

Built on a 99-year ground leased to Aimco, this project will comprise 310 luxury apartment homes, around 22,000 square feet of commercial space and 147 parking spaces. Aimco envisages making investments of around $190 million in the next two and one-half years for developing this project that will enjoy easy accessibility to public transit, the Government Center, Financial District, and Massachusetts General Hospital employment centers and shopping spots.

Aimco plans to sell lower-rated properties in Colorado, Indiana, Massachusetts and Texas to finance the equity part of the deal. The company anticipates One Canal Street project to reap a FCF IRR that is well ahead (by 400 to 450 bps) of the properties marked for sale and (200 to 225 bps above) that is available on the buyout of a comparable, stabilized property in this submarket.

Aimco has been focusing on expanding its footprint through acquisitions and redevelopments across target markets in the U.S. With both the properties positioned advantageously, we believe Aimco can reap solid rentals from these properties. The projected rate of returns remains favorable and therefore we are encouraged.